Today, I will be analyzing Pennpetro Energy PLC’s (LSE:PPP) recent ownership structure, an important but not-so-popular subject among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct PPP’s shareholder registry.
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Institutional Ownership
Institutional investors are one of the largest group of market participants and their buy-sell decisions on a company’s stock can significantly impact prices, more so, when there are relatively small amounts of shares available on the market to trade. With an institutional ownership of 6.13%, PPP doesn’t seem too exposed to higher volatility resulting from institutional trading.
Insider Ownership
Insiders form another group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. 13.12% ownership of PPP insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). Another aspect of insider ownership is to learn about their recent transactions. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.
General Public Ownership
With 6.84% ownership, the general public are also an important ownership class in PPP. This size of ownership, while considerably large for a public company, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Private Company Ownership
Potential investors in PPP should also look at another important group of investors: private companies, with a stake of 70.80%, who are primarily invested because of strategic and capital gain interests. With this size of ownership in PPP, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.